California Second District Appellate Court Justice Lee Smalley Edmon
LOS ANGELES - Tenants don't need to show they were actually harmed by a landlord's allegedly illegal background check to sue their landlord under a California state law regulating investigative consumer reports, a state appeals court has ruled.
Defendant landlords Barrington Pacific, Shores Barrington and DE Glendon own Los Angeles area apartment complexes.
They face a lawsuit from more than 100 tenants who filed complaints from November 2020 through July 2022 alleging mandatory screening and background checks — with a nonrefundable $41.50 processing fee— violated the California Investigative Consumer Reporting Agencies Act (ICRAA).
The lawsuit accused the landlords of failing to disclose the scope of their investigations; of not identifying the involved agencies; not giving prospective renters notice of their right to inspect what those agencies have on file; and not offering or providing copies of reports.
After consolidating the cases, Los Angeles County Superior Court Judge Thomas Long granted the companies’ motion for summary judgment, finding the plaintiffs couldn't show they were ever actually harmed by the alleged violations.
The renters brought the issue to the California Second District Appellate Court. They argued the ICRAA’s $10,000 minimum recovery should mean they only need to accuse the landlord of technical violations of the statute in order to sue.
They also said they should be allowed to sue under the state’s unfair competition law on claims they paid for copies of investigative consumer reports and weren’t given those documents in time.
Justice Lee Smalley Edmon wrote the panel’s opinion, filed Jan. 21; Justices Anne Egerton and Mark Hanasono concurred.
The primary question, Edmond said, is if lawmakers included a $10,000 minimum recovery “as a deterrent and punitive measure that grants standing to plaintiffs who have not suffered concrete injuries resulting from ICRAA violations.”
The panel noted the law “makes clear that actual damages and the $10,000 are separate and alternative forms of recovery” by clarifying failure to comply makes violators liable for actual damages “or, in the case of class actions, $10,000, whichever sum is greater,” Edmon wrote. “The ‘or’ signals that the statutory amount operates as an alternative remedy, a substitute for actual damages or a concrete injury, underscoring its punitive and deterrent nature.”
When the identical issue came before a Central District of California federal judge in a 2006 case, Diaz v. First Advantage Background Services Corp., the result was the same conclusions: Plaintiffs could recover $10,000 without showing their own financial damage. The panel noted other judges observed California lawmakers could have limited standing but opted against doing so, noting other laws passed contemporaneously included language on standing thresholds.
Edmon said lawmakers enacted the state law as a remedy to perceived shortcomings in the federal Fair Credit Reporting Act, among those the “extremely difficult” task of determining the damages suffered from a credit denial.
“Assemblyman Gene Chappie, who co-sponsored Assembly Bill No. 601, similarly stated that although federal law provided for individual financial recovery for inaccurate or misleading consumer reports, federal law did not ‘set (a) minimum recovery’ and ‘in the past, damages have been so negligible that consumers have not been encouraged to seek reimbursement,'” Edmon wrote. “ICRAA responded to the FCRA’s deficiencies by setting a minimum recovery when damages could not be proven.”
The panel further noted consumer credit reporting groups opposed enactment of the law in part because of its strict liability and the apparent intent of lawmakers to create a system where judges could award money to plaintiffs — the fixed minimum recovery was $300 in 1975 — without regard for whether they actually demonstrated financial harm from a legal violation.
The landlords argued the panel should apply the analysis from a 2022 California Fifth District Appellate Court opinion, Limon v. Circle K Stores, which ended with a plaintiff unable to continue an FRCA complaint because of a failure to show damages. Edmon said that court distinguished between damages as compensation for financial loss and a court-ordered civil penalty, but the panel found that “analysis rested largely on semantics” and said there are many instances where statutory damages can both punish offenders and motivate compliance.
After finding the plaintiffs did have standing under the ICRAA, the panel concluded that isn’t the case with respect to three who asserted unfair competition claims. Edmon said premising a competition claim on the alleged ICRAA violation isn’t sufficient for standing and further explained the companies were up front that paying the fee — “$22.99 for credit and screening reports, and $18.51 in costs, including overhead and soft costs, related to the processing of the application” — never carried a suggestion the applicant would get the report.
“Accordingly, the undisputed evidence shows the plaintiffs received precisely what they paid for: the processing and consideration of their rental applications, which resulted in their approval as tenants,” Edmon wrote. “The failure to provide plaintiffs copies of their consumer reports within three days also does not amount to an ‘injury in fact’ because plaintiffs do not allege that they suffered concrete or particularized harms as a result.”
The panel affirmed summary judgement on the unfair competition claim and awarded the plaintiffs the costs associated with appealing the superior court ruling.
The tenants are represented by Stiller Law Firm, Victory Law Group and Meta Law Group.
The landlords are represented by Hinshaw & Culbertson.
